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America's Car-Mart [Part 1]: Turnaround Story Worthy Of Attention

Stocks in this article: CRMT

America’s Car-Mart, Inc. (CRMT) operates 131 auto dealerships within ten states and is the largest publicly traded automotive dealership in the US, focused exclusively on the “Buy Here/Pay Here” segment of the used car market. Car-Mart operates dealerships primarily in small cities throughout the South-Central region of the country, selling quality used vehicles and providing financing for substantially all of its customers. The company has a market capitalization of $331 million and an average daily volume of 70,380 shares.

America’s Car-Mart not a traditional value play

Now, strictly speaking, America’s Car-Mart, Inc. (CRMT) is not a traditional deep-value, or value play. Instead the company looks to be a good turnaround story, which will benefit from the US domestic economic recovery and strengthening used car market.

As already mentioned, America’s Car-Mart, Inc. (CRMT) operates second hand auto dealerships throughout the US, as well as offering financing solutions to its customers. Unfortunately, the financing element of the company does pose slightly more risk than I would like, testament to this is the $0.52 per diluted share non-cash after tax charge the company was forced to take in the most recently reported quarter, as management increase financing loss provisions. Without this charge earnings would have been 325% higher for the quarter; it quickly becomes apparent that Car-Mart’s future growth is heavily dependent upon an economic recovery and rising consumer wealth. Nevertheless, aside from consumer finance, Car-Mart is set to benefit from the growth of used car sales as they return to pre-recession levels -currently expected to occur during 2014. And to some extent the strengthening second hand auto market is already having an effect on Car-Mart’s sales. Specifically, during the first nine months of Car-Mart’s financial year, revenues ticked higher by 8.1%, with same store revenue growth coming in at 1.8%. The company also reported a 6.7% year-on-year rise in the number of units sold from 29,970 to 31,986.

As revenues expanded at a higher rate than the number of units sold, there is an indication that unit prices increased year-on-year.

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